Real Compensation – Still Below Where It Was Two Years Ago
Kash treats us to three things: (1) the latest on compensation from the BLS; (2) his own analysis and chart; and (3) a discussion from Rex Nuttig:
In the past year, employment costs are up 3.3%, the fastest year-over-gain in five quarters. It’s the first time compensation costs have risen faster than inflation in two years … A year ago, inflation-adjusted wages were down 2.3% year-over-year, but were up 1.1% in the past four quarters … Even though employment costs are at a two-year high, the increase has been modest by historic standards.
OK, the latter may have been a trick or perhaps that rock Charlie Brown usually got during Halloween. So he starts off with a nominal increase before he notes that the real wage increase for the past year was less than the real wage decrease for the year before. Translation: over the past two years, real wages have fallen by about 1.2%.
But the claim that employment costs are at a two-year high is just absurd. Why? Look at my chart which takes the September to September nominal increases in total compensation as well as wages and benefits and converts them to real changes. Real benefits barely increased during the period from September 2004 to September 2005 and then rose at the same modest rate as wages during the last year. Real compensation fell by 1.6% during the period from September 2004 to September 2005 and then rose by 1.2% over the past year. Excuse me – but how can one say that real compensation now is higher than it was two years ago?